isn't one there isn't one it's diminished massively since a year ago japan japan i think struggling. stimulus measures coming up after the next government takes over and december more positive from extra to bad i can't see an exit. a global equity markets where is the smart money go think a smart money is going into emerging markets in particular country. greece countries. i think i think all emerging markets as an asset class get full of showed to people investors are switching money heavily into emerging markets since melissa tambour almost a lot of is going into asia right now because of china i think next year we'll see a reversion back into e.m.e.a. in lead time to last a bit in the last couple or oil prices oil prices sustain because of conflict in the middle east probably for most of next year under threat probably from two thousand and fourteen onward range bound wheat global growth being so we don't look at a rise much but saudis producing its historic highs and they committed to one hundred

dollars so it's not going to fall either right thank you gentlemen now let's have a look at russia's energy patch. women are just officers well gans and bring you both russia has them all it is home to would largest natural gas reserves the second largest oil reserves the east largest crude oil reserves and the world's second largest renewable energy producer and common sense would suggest that countries with huge will and gas resources crisper or at least before him better than those without such natural wealth but meenie were in the world to have a lead on their energy world drives up prices and costs rabbits and through investment and makes manufacturing uncompetitive less of symptoms of what it's called dodge disease however russia has stabilized and get production while managing to avoid overt symptoms of this malady and the reaction to the recent deal between rosneft and t.m.p. b.

is a further evidence of this significance. this is a very good sign for the international market for the international energy market it's another confirmation of the trust of our partners in the work of the russian market it's a huge positive deal that is important not just for russia's energy sector but for the entire russian economy the global energy map is changing in a dramatic fashion the international energy agency has recently published its world energy outlook two thousand and twelve it projects the world demand for energy resources more than triple by twenty to thirty five and sixty percent of those growth will be concentrated in china india and the middle east with almost ninety percent of middle eastern oil flowing to asia the us iraq is said to become the second largest oil producer and the lead in all supplier to china the world's leading edge of storage it says the u.s. is on course to replace so directly or as a largest oil producer by around twenty twenty the united states which currently

imports around twenty percent of that startle engineer. is predicted to become all but self-sufficient in that sounds dramatic reversal of the energy transfer seen in most other energy imports and can trace much of this is based on unconventional methods of fracturing sites or shale rock she also projects hotly debated and how much oil can be exploitive and how fast the plans heavily on the price of oil and how easy it is to overcome objections to all fracking was but with what you order to get shale gas you must drill horizontally incessantly and that means the profit margin of the process gets lost very fast with a silencer put up in russia is well guessed from has launched a project to develop oil in even the reserves least not before i twice as large in those of conventional oil the price of the extraction is many times higher the global energy map is changing was potentially far reaching consequences and you

monkeys and tree and profoundly transform the world geopolitics that is your national on the money r c. ok and now we're also joined by dmitri lucas of he's head of oil and gas at v.p. b. capital and simon fenton fletcher portfolio asset manager with renaissance asset managers simon if i can go to you right now what is the main driver of the global energy market right now and think in terms of russia its role well i mean the engine market as well as just heard in the report is shifting fundamentally more towards asia as a commodity vacuum. in russia is in russia's benefit in many many ways obviously the vast majority of russian energy exports are going to europe europe is in a substantial recession possibly going to go on for many years asia will be the next vacuum for russian energy exports and dimitri franco do you know i mean there seems to be a major shift in going on here is russia is it

a net win for russia or or a net negative how do you see it going for. world over the next two decades for example well next really really long horizon probably i can talk about as a little bit shorter but definitely the growing demand in there is obviously beneficial for russia and. it's sort of difficult for me to imagine how it could be negative for a ship. ok chris i mean in what way i mean this is there's a benefit here there's huge demand out there and we look at china and we look at india here but is that good for russia's oil sector energy sector in general look i think you you really have to step back and put a question mark over the extent of future oil demand growth in asia in the middle east the i.a.e.a. reports through to which your prefer to. talk about very strong growth in conventional energy supplies the u.s. shell oil shale gas that's we all know you're right about this for a long time but it is good with that it is now growing though that it is real

numbers the the u.s. for example has added over a million and a half barrels of new oil in the last couple of years so it's not really happening but if the i.a.e.a. is assuming that all that extra oil demand for oil production sorry is going to be absorbed into asia they're essentially expecting to china india middle east will grow their annual oil imports by more than a million barrels a day you know almost forever now i think that's a huge assumption to make because you know if it for example if china were to start developing its own shale oil or gas resources then they would wouldn't need that imports if we were to get any substitution towards other alternative energy cetera so i think it's a huge risk to rely on this you know never ending growth in demand for energy from china and when you think about that i mean is yeah well we it's a broad picture here but there's a lot of ifs and buts yeah and you know we're in the business of doing forecasts

chris annoying and we know when you when you start pushing it out five ten fifteen twenty years there's so many are known that it's difficult to have confidence about a single point forecast what's going to happen with technology with electric cars what's going to happen with you know costs of unconventional oil at the moment they're very homely which kind of puts a floor on the oil price but could that change over time we don't know i think over the. five years we can say russia sitting in a good position because there's not much speck of pasty in oil opec or saudi are committed to one hundred dollars floor and russia has shown that the predictions of stick line from where siberia have not been proven right productions continue to edge up year on year so russia has a reasonably good stable prospect for the next two to five years and beyond that russia's got some upside as well as the downside the upside is in the passion of sweet that some people have talked about the unconventional resources in russia and of course that great unknown which is still fifteen years out of the arctic and

whether it's enormous can be realized offshore you know so many it there's still a lot of investors are skittish about russia because of its lack of diversification away from energy and then we hear this energy story of huge demand that mean how do you how do we maneuver this how does russia maneuver this. russia traitor survey this massive discount to its western peers and also to other emerging market peers the market market prices in a substantial risk within russia i'd like to go back just for one second and let's just go back a hundred years i mean the world got its energy from coal and wood in the next twenty years as rightly said i think the major risk to russia is the technological risk if the if the us if the us has five dollars a gallon of gasoline then it will innovate and of a out of an oil problem that's that's the significant risk to russia and that's the way that most investors see it dimitri you know when you look at the rushes oil patch energy patch in general is big good or is it good for competition is this

again it's a criticism of russia's energy sector. you know it has to follow would lead to mention the one pretty important issue that russia russia has actually has a part has plenty of oil plenty of conventional oil and just to use sounds with kurdish will flow in the us of so much about us for the united states is just so. that it's worth war so we have a lot of conventional oil before we get to the point to where united states decided to go to share or we need to do a carbon out of fifteen billion tonnes of could. take another twenty years so far far away from a point where we need to think about it show or before we go to chris i want to ask you i mean again i mean this diversification if you consider something the people i have lived here for fifteen years and we've been talking about for fifteen years sure look i mean everybody knows the four most dangerous words in english language

are it's different this time i think it's quite clear that you know the pressures are building you know like the what i'm hoping is that we're now seeing what may eventually be seen as some sort of an economic tandem or in the one hand it's quite clear at this stage is intending to have you know big energy sector we see it with russ noti in k. you know under state controlled regulated industry you know that industry clearly is going to remain you know a major part of the state's portfolio and a big part of the whole economy but on the other hand it doesn't preclude what we hope will be now faster reforms and more effective efforts to develop the broader economy new industries services industries etcetera you know for example industries that might grow on the back of w two your membership which might be having dinner we're going to go with a short break and after the break we'll continue our discussion on russia's energy sector stain.

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mission to teach music creation why it should care about humans in bringing this. why you should care only on the r g dog job. i welcomed back to on the money i'm peter all of our job and you were talking about russia's energy sector ok gentlemen and i have to go back to you what would be the optimal energy strategy for russia not make it ten years now and not twenty years out but what do you know what's going to work and what they need to change and i want to also look at equities here in investing in the energy sector as well and if i had a crystal ball that looked at ten years i'd probably not be sitting in this chair. but i mean in all honesty russia to diversification away from europe is critical we were we're seeing we're seeing russia still trying to build new pipelines into across the north stream into into the u.k. possibly i mean should we really should be focusing on asia where substantial

substantial growth will still happen we when you've got countries growing between five and seven percent in asia maybe not sustainable as we've heard earlier but that still substantial growth as opposed to europe which is experiencing negative growth and looking at five or ten years will probably take almost take that long to recover from the euro so euro zone recession. if if there's so much demand out there going forward what is the likelihood of russia will just say hey you know we've got lots of resources here to export you know and you know dutch disease and things like this i mean is there the political will because i mean political cycles you know all came rushing out six years ok in united states it's four but i mean when you're looking for the route that takes a lot of guts well i think you could have you could have your cake and eat it to a certain extent i think you're going to get this diversification. of the economy because you don't have the prospects of the oil sector driving growth in the way it did in the two thousands prices rose volumes rose and you've got this sort of six

to eight percent growth for a decade on the back. that now we're in a world in which the argument is are we going to have plateau or oil going to me because i want to talk about peak oil market at all we are we going to are we going to stay with you know all production roughly where it is or will it fall so that's not going to be a source of growth but russia wants to grow it aspires to catch up and we convert right us and so you've got this new investment policy that the president's talking about entry privatization improving the investment climate to try and make investment increased investment and more effective investment the driver of growth in the economy and that's good i think that's a sensible policy and doesn't preclude trying to expand your export group routes expand your supplies to asia both oil and gas that can co-exist with it dimitri is the russian government doing the right thing for foreign energy companies to come into russia is there enough room and of corporate governance eccentric cetera. i

think it would be better government simpler that there are international private companies russian private companies to participate participate in the new other part of the quarter or on standalone basis rather than. to participate injuring to ensure this new russian state company is it's still better than or permission at all so at least the direction is a smaller three than the more likely the same question to you yes no i think you agree with it would be better clearly if it was more open but at least now the rules of the game are clear to use that cliche compared to say just two thousand a cliche when you look at the two thousand you know exactly you know it now people know what to expect so yeah and so we're seeing companies like exxon i guess a good example historically they've all been very vocal about their why they wouldn't come into russia because of the uncertainty you know they are the are parking rust and i've been in the arctic so i think that those reflect how your industry now sees and can better assess what's going on in russian are willing to

participate but i think in general one point i would like to make an english to energy policy i think it's in more in relation to gas i think that's one area where russia clearly is dragging its field feet and you know without any doubt the market is moving more towards more portable gas than words l.n.g. and here we are building you know about to build south stream another big expensive gas pipe directly into europe rather than concentrating on more l.n.g. which would give us more global global position and more flexibility so that's one thing we would definitely like to see in relation to energy policy complacent. yeah no i think l. and g. makes a lot of sense i find it difficult to see the case for building south stream because we've. already got more export capacity to europe and it's exporting gassy have to have quite an optimistic view on future growth in in gas exports or feel that i missed the view about ukraine or pessimistic view about ukraine that's true but still it seems like a lot of money to put on the back of an unclear demand forecast. much better i

think to expand the eastern route where south korea and japan pay a big premium to european prices for energy ok simon let's talk about peak oil i mean again this these reports that have come out recently about demand i mean how does that change our understanding of peak oil because i i'm fascinated by because every few years it's there's a new theory about peak oil and i mean literally i mean it seems every other month there's a new you report so and we cannot there's a little bit more there's a little bit more and they just. become a little bit confused myself over over what it bought what is what is really peak oil now how much can we actually get out of these things and we were supposedly west near west of siberia supposedly on the decline and yet we every year we little bit more and. i think the geologists need to go sharpen their pencils a little bit. dimitri where you can be in on the peak oil issue. i am not to really believe in these theory and i believe still

a lot of oil and underground that we are going to learn more and more hard to extract so again. more familiar with what the words we have an irrational and we are far far away from this point chris well actually go back to jacobson here earlier about technology and you know we've been listening to peak oil arguments for you know for decades fifty or sixty years and what's always been running is the technology changes we are able to extract more oil in more efficient use that cetera and i don't see that changing frankly i think that technology is still the big issue i mean the only reason i would expect you know peak oil to be a valid concern is if we were to get this very strong growth in demand from aged d.i.'s looking for and we didn't get the growth in shell oil that's expected then maybe we might run into it but but frankly there's so many ifs and buts there i wouldn't put any money on peak oil. relation at all because the price rises more oil becomes commercial to develop you know and we have the arctic you know lots of

unconventional oil it's change gears gentlemen the cycle. some of global issues here let's go to the u.s. fiscal cliff jayco yeah i think we're probably going to go over it i think that you know we got quite entrenched positions between the house republicans and the white house over raising taxes in particular will go over the cliff but then probably they'll be a deal in the first quarter of some sort you know but the white there's a very wide range of uncertainty there are based cases that will have a one and a half percent of g.d.p. tightening fiscal policy rather than the five percent that's written into the current budget arithmetic so that's going to be enough to keep growth in the u.s. just positive whereas if we have the full five percent we're going to full blown recession in the us which of course will hit the rest of the world too chris you know i think this whole issue is going to run right up to the end of march because not only do we have fiscal cliff and the end of this year but we also have to be could be increased to be an agreement on two thousand and fourteen budget on debt

policy and agreement to really have to raise the debt ceiling all of which are all into february march so i think this whole issue is going to remain unresolved right through to the end of first quarter and i think that creates a very volatile and uncertain backdrop for all markets sun whether it's more of the same risk on risk of at least as we get into the spring because of these issues so i mean where do you come in on this i mean really is it the titanic and we are all just arguing over the seats on the on the top deck now i am in the fiscal cliff has been having significant impact already and me if you just look at us cap ex numbers are significantly down and this is it this is a worrying thing so c.e.o.'s. of major u.s. companies have been have been paring back on on planning on investing and on hiring us labor market let's not forget that is is recovering extremely slowly so the fiscal cliff is already having a major impact i agree with the two guys before i think it will probably go into the first quarter where you know they have a debt ceiling and the debt ceiling well we will be breached in about march so that

that that will be that's that. ultimate line but there's been conflicting noises coming from that from the republicans in the house even though they've signed up to the new increase in taxes i thought there will definitely be compromise i mean all they have to say but i think you yes ok dimitry it's talk about russia's growth story here i mean we'd end the year around three point three percent three point five percent what are you looking at next year for g.d.p. growth for russia considering everything we've said about oil prices fiscal cliff except. i don't see how far these go of might be accelerated in the future interesting year of near future take into consideration all restraints on political and economic issues so i would expect something similar or even slower in the next year where we're going with three and a half percent g.d.p. growth next year we take the view that you know that the central bank has learned a lot of lessons finance ministry from two thousand and eight in

a much more flexible currency policy you know we almost see free floating against your price now which text about just within the budget is enough resources you know to keep kind of current spending in place and that that budget spending can kind of keep the domestic story but you know within a narrow range it also of course handcuffs it means that without reforms made you change we can't even think about forty five percent g.d.p. growth again but we can look at three three now for the next couple of years three in three and a half not bad in that yeah it's really bad but i think all will well we're going to slow down a little bit next year because i think i see policy tightening both from the budget side where the new fiscal rule means that we're going to have a slowdown in budget spending growth next year and on the monetary side where i think the central bank's committed to inflation targeting and it will perhaps hike a couple more times in the next in the next few months as inflation rises further above target so a bit of military tightening but a fiscal tightening a bit of a slowdown in growth just above three percent so i mean what's your prognosis i'm

probably slightly off slightly previous guys you know i'd probably say two and after three i mean agree you know fiscal tightening is there is almost inevitable it's certainly certainly going to be slowing down the europe europe going into a prolonged recession as well more than likely happen is not going to benefit russia at all so yeah i see a slowing down in growth but remember if we've got two and a half percent growth it wasn't so long ago we had five from five to two and a half feels like recession anyway ok and political risk chris going into the new year you know i don't see any issues right now i think that's what you read to me. yeah you know there's a lot of political risk. and i don't like the media i walk around the streets and i mean i just don't see it i think you know if we are going to talk about political i mean look at the next political event we're going might have something to talk about the next september when we get to regional elections and the election of the new moscow governor except it's so mike a bit more exciting than my kids exciting ok many thanks and even my guests and thanks to our viewers for watching us here on on the money see you next time and

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